Posted by Tom Callaghan, director of partnerships at Legal Futures Associate Sentry Funding
Callaghan: Time for action
As the Litigation Funding Agreements (Enforceability) Bill was debated in the House of Lords last month, a number of peers shone the spotlight on the need to address the poor state of the rules governing damages-based agreements (DBAs).
As Lord Trevethin and Oaksey (Patrick Lawrence KC) explained during the debate, the Damages-Based Agreements Regulations 2013 were at the centre of the Supreme Court’s reasoning in the PACCAR case.
The peer remarked that “everyone, including the Ministry of Justice and just about every judge who has ever had to read the regulations, recognises that the 2013 regulations were badly drafted. In particular, they leave a very undesirable uncertainty about whether hybrid agreements involving an element of a damages-based agreement and an element of a more orthodox funding scheme are permissible.
“They leave a great deal of uncertainty as to what happens to the lawyers’ entitlement to remuneration if the client terminates the agreement in the course of the relevant litigation.”
Lord Trevethin and Oaksey went on to explain that, due to the numerous problems with these regulations, a new draft was drawn up by legal experts (Nick Bacon KC and Professor Rachael Mulheron) in 2019.
“There is no doubt that those draft regulations would represent a major improvement,” he said. “If those draft regulations from 2019 had been put in place back then, we would not be having the current debate and there would be no PACCAR problem.”
The peer noted that the 2019 draft had anticipated the difficulty that underlay the PACCAR decision and removed any ambiguity by taking litigation funding agreements outside the scope of the DBA regulations.
During the debate, Lord Trevethin and Oaksey then pressed the government to “provide any further information or assurance as to the speed with which the ministry and the government will move in the direction of reforming the DBA regulations”.
He was not the only peer to make the point about the need to address the current state of the law in relation to DBAs. Crossbench peer and former judge Lord Meston (James Meston) asked why the government had left the 2019 draft regulations “in limbo”, while Conservative peer Lord Sandhurst (Guy Mansfield KC) added that “it was a mystery to practitioners at the time that, after all the work that had gone into [the 2019 draft regulations], they were never laid”.
The response of the government minister, Advocate-General for Scotland Lord Stewart (Keith Stewart KC), was not hugely encouraging, however.
He said: “The government will consider the timetable to make improvements to the DBA regulations without encouraging unnecessary litigation. Any revisions to the current regulations will be subject to a statutory consultation, which is set out in section 58AA of the Courts and Legal Services Act 1990, and to an affirmative resolution, which is set out in section 120 of the 1990 Act.”
DBAs were an important piece in Lord Justice Jackson’s jigsaw of costs reforms which saw an end to recoverability of success fees in conditional fee agreements in 2013. But the poor drafting of the 2013 regulations has had a detrimental effect on the number of solicitors prepared to enter into DBAs.
More than a decade on, it is time for the government to take action to address the flaws in these poorly drafted regulations, which are clearly not fit for purpose.
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